The real reason GoPuff bought BevMo

When an East Coast startup called Gopuff paid $350 million for BevMo in November 2020, it wasn’t immediately clear what the tech company planned to do with California’s largest liquor chain.

Founded in Philadelphia by two college friends in 2013 and backed by over $1 billion in venture capital, Gopuff has been delivering beer, snacks and other merchandise to corner stores, allowing it to compete with the likes of UberEats, DoorDash and Drizly, which rely on software and contract labor to avoid owning physical assets. What did Gopuff want from a collection of over 100 generic bottle stores?

Two years later, Gopuff built its California business on those physical sites and their critical liquor licenses, says co-founder and chief executive Rafael Ilishaev, using them as local supply fulfillment centers. With a strong foothold in California, Gopuff has expanded to 42 states, the UK and France and employs over 13,000 employees, not counting drivers.

But in recent months the path has become bumpy. Drivers in Gopaff’s hometown, Philadelphia. declared a one-day strike at the end of 2021, alleging that the company routinely underpaid them for hours worked and had cut wage rates over the years. Rivals DoorDash and Instacart have also begun to adopt the Gopuff model, building their own micro-warehouses to speed up shipping, rather than only shipping from other retailers. Now that Gopuff plans to go public, lawmakers in New York are considering regulating instant delivery companies, and the company reportedly layoffs to cut costs.

A bus advertisement for Gopuff grocery and delivery store in London.

Gopuff is headquartered in Philadelphia and operates in the 42 states, France and the UK.

(Mike Kemp/In Pictures via Getty Images)

The Times spoke to Ilishaev in late January while he was in Los Angeles for a charity event at the Watts Community Labor Action Committee, where he and nonprofit Baby2Baby were handing out thousands of rapid COVID-19 tests. He spoke to The Times about why Gopaff bought Bevmo, how the business works and how he reacted to the strike. He declined to comment on the planned initial public offering.

Why buy BevMo?

It is indeed very difficult to obtain a liquor license in the US. Every state is different. In some states it takes six months. In other states, it takes three years. Some states, like California, have moratoriums and counties where you can’t even get liquor licenses anymore, no matter how much money you spend on fixing the problem.

So at that time we had seven years of experience in obtaining licenses to sell liquor. [in 2020]. We were aware of the monumental task of entering such an important state as California. The regulatory framework provided to us when purchasing BevMo played an important role. This allowed us to enter and take over the market in a really meaningful way.

You received $750 million from investors in 2019, including the giant $100 billion SoftBank Vision Fund. Was buying BevMo part of your offer to get that money?

BevMo didn’t even join the conversation when SoftBank [and other investors in the 2019 round] appeared. When we started looking at California a few months later, we began to realize that it would take anywhere from five to eight years to recreate the BevMo liquor license network and location.

Yes, California real estate is not the easiest market to enter right now.

As well as [BevMo] has been building since the 90s. So we thought that either we could go through this five to eight year process, or we could partner with one of the only liquor store chains in the US. country – the market is fragmented into mothers.

So what has happened to the BevMo stores since you took over?

We built the MFC [micro fulfillment center] in almost every BevMo, unless the BevMo is too small. As for the in-store experience – I hate to talk badly about ex-operators, but it worked quite badly, there was no investment in the brand.

We’ve just done some really basic things with the range: providing greater access to the products that BevMo customers wanted, using data to understand the products that are frequently purchased with alcohol, and listing those products in the BevMo store. So for the first time in most of 15 years, the retail business grew.

What goes on behind the scenes to build a tiny delivery warehouse inside a liquor store?

Practically speaking, we had to rearrange every store in the middle of the night. While BevMo was closed, we cleaned out the entire store, relocated the entire store, added Gopuff assortment [of new products,] and built the MFC in 7-14 days.

How did it make a difference for the existing store staff? Were they involved in all this work?

We got some of our best people to move to California and help outdated staff really scale up. We retained all of the existing BevMo employees who worked in the stores and many of them left for [micro-warehouse] hand, as well as to help assemble and pack and become shift leaders [on the delivery side.] They also had rather archaic tech in stores, so we moved them to the 21stst. century.

Did you have any doubts about spending $350 million at the height of the pandemic?

Many people told us not to do anything. [mergers and acquisitions] in the midst of a global pandemic, but we received so many requests from California and so many people who wanted to use this service. We had millions of app downloads in California and we weren’t able to serve those customers.

Our business was 6.5 years old at the time and we have grown by triple digits year on year since we started. And then the pandemic was like an adrenaline shot, as if in one quarter we got a year of marketing. So we thought we just need to believe that luck favors the brave.

Gopuff drivers in Philadelphia went on strike in November. You didn’t comment right at the time. What was your reaction to the strike?

I deeply sympathize with the people who work inside buildings and the people who deliver orders every day. But I look at the facts for this kind of stuff and data. The vast majority of our drivers are very, very satisfied.

Have you raised your wages given the tight job market?

Somewhat. When we launch a market, we need a critical mass of orders before that market starts to make a profit per order. We like to create a positive unit economy, so we need volume, and that takes a few months. So you need to create a minimum threshold for drivers in those early days, but once the market really starts buzzing – month five, month six, month seven – you’ll have enough order volume to support those $18-$25. [hourly] a range that is good for business and good for our partner drivers.

So, is there a world where you respond to drivers’ demands, such as refunding mileage?

Not everything is so clear and simple. We are constantly looking for ways to improve the driver model and provide drivers with access to various perks, whether it be cheaper gas prices or access to ways to better service your car and get a discount on it. So there are ways to achieve the driver’s goals and still keep the model as it is today. But we constantly evaluate what is important to our driver partners and respond accordingly.

How do you stop Amazon or Uber from jumping into the fast shipping game and simply outbidding you to win the market?

It’s a really damn hard business to understand. That is why we have been silent for so many years. We didn’t do PR or anything else because we figured out how to scale this business. I had to build everything from scratch.

So if it’s part of someone’s time, you know, good luck. It’s not a side business where you just put delivery partners in a city and open it up.